I’ve heard bankruptcy is the worst thing a person can do for their credit. Is that true?
Bankruptcy is a legal proceeding where a person or company simply says they can’t meet their debt obligations. A bankruptcy “wipes the slate clean” and lets the debtor start over again. As a blanket statement, bankruptcy isn’t “the worst” thing for your credit, but it will have a negative impact on your credit file for about 6 years. There are cases where a bankruptcy is actually the best solution, and it’s always best to look at all options with an open mind.
‘ve fallen behind on my taxes and my credit cards are months overdue. What can you do to help me?
The first thing we’d need to do is take a look at your overall financial situation, including income, expenses and dependents. Then we’ll need to make sure assets like your home and car are fully protected. After that we’ll take a good look at your options and choose the one that makes the most sense for you.
Can you get my creditors to stop calling me?
Yes. Once you start working with us we will stop your creditors from calling you.
How much will my debts be reduced?
Each case will vary, but we average a 70% reduction in debts for our clients.
What about interest payments?
All our programs stop any interest charges. Your full payment will go toward any balance.
I’m behind on child support and alimony. Can you help me with those?
Things like child support and alimony are not eligible for any kind of program.
I need to do a business proposal. Can your firm help me with that?
Yes, we’re able to help you do Division 1 proposals and business proposals.
If I do a proposal or bankruptcy, will my credit be ruined for the rest of my life?
No. In Canada a bankruptcy stays on your credit file for 6 – 7 years, and a consumer proposal stays of your credit file for 3 years from the date of the final payment.
Why should I hire a debt consultant? Can’t I just do it myself?
Debt consultants represent your financial interest in any kind of proposal or bankruptcy. It’s similar to hiring a legal professional for court. They can point out certain rules in the Bankruptcy and Insolvency Act that could save you thousands of dollars. Hiring a debt consultant ensures you’ll have a person looking out for your interests in the transaction. Would you go to a high stakes court case without a lawyer? A debt consultant serves the same role.
FICO and BEACON Scores
In the last article we discussed what the “R” rating on a credit score means. In Canada the BEACON score is more popularly referred to, while the FICO score is slightly more known in the US. BEACON scores are actually determined using a refined version of the FICO algorithm, so the two scores are highly correlated. The exact algorithm and methodology for calculating the final score isn’t revealed, and is adjusted from time to time, but the general methodology is in the public domain.
The FICO Score
The current equation for calculating credit risk today was developed in 1989 by the FICO Company, a publicly traded firm, listed on the New York Stock Exchange, under the symbol FICO. The name is actually an acronym for Fair, Isaac and Company. Their primary product is the provision of decision making and analytical services; their most widely known service being the credit scoring methodology widely in use today.
Shortcomings in the System
FICO and BEACON Scores are often skewed due to a variety of factors. Closing old, unused revolving credit accounts has a negative impact on a person’s overall score, while a credit limit increase on an existing account can have a positive impact on their profile.
Another issue with the system is the method of reporting. Since centralization is not fully incorporated into the database, credit agencies often post erroneous information on a person’s credit file. Most lenders only use BEACON/FICO scores as part of the equation when making a credit assessment, as they keep their own databases that they rely on to help in making credit granting decisions. This can result in some confusion. So far the industry seems to be a long way away from fixing the challenges facing it and everyone over 18 should request a copy of their credit file once per year to check for errors.